Five steps to start investing in cryptocurrency
perks: you don’t have to be an expert
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If you’re looking to invest in cryptocurrency, make sure your finances are in order. That means having an emergency fund, a manageable debt level, and diversified investments. Crypto can be one part of your portfolio to drive returns. Here are five other things to pay attention to when you’re investing in cryptocurrencies.
Understand What You’re Investing In:
Just like stocks, read the annual report and SEC filings, so you know exactly what you’re investing in. With cryptocurrency, there are thousands of different coins that all have different functions and applications. Some coins don’t have any assets or cash flow backing them, so the market must become more bullish for you to see returns. So do your research ahead of time to understand potential upside and downside before investing.
Remember, The Past Is In The Past:
A common mistake made by new investors is believing past trends will continue into the future. Remember that cryptocurrencies like Bitcoin were worth pennies before they got much more valuable — but that doesn’t mean they will keep going up at the same rate forever. Instead of relying on past performance, focus on what the future could hold for your investment.
Be Aware of Volatility
Cryptocurrency prices can be highly volatile and can quickly decrease on the basis of an unfounded rumor. Although this may be a great opportunity for experienced investors who have the expertise and resources to make rapid trades or a solid understanding of market fundamentals, trends, and potential movements — it’s a minefield for new traders who lack these skills.
Volatility is often a challenge for high-powered Wall Street traders who want to outsmart other investors. Unfortunately, beginners may find themselves at a disadvantage when faced with such volatility, as they may be tempted to sell out of fear. This allows other traders to swoop in and purchase at a lower price, meaning inexperienced traders may end up ‘buying high and selling low.’
Managing Your Risk
For any asset trading done in the short term, it’s important to manage risk — particularly with volatile assets like cryptocurrency. As a newer trader, you will need to understand the best way to manage risk and create a process that helps you reduce losses. However, the approach may differ from trader to trader:
Long-term investors might just never sell no matter what the price is, whereas short-term traders might choose set rules when selling (e.g., exiting when an investment drops 10%). It’s also suggested that new traders set aside an amount of money dedicated towards trading, using only some of it initially — so if their position does not go as expected, they still have money remaining for future trades. The primary point is: you should always consider your risk.
Choose money you can afford to lose
It’s essential to avoid putting the money you can’t afford to lose into speculative investments. Whether it’s for a down payment on a house or an important purchase you’ll need in the near future, it’s best to keep that money in secure accounts. If you want an assured return, paying off debt is the way to go since you’re guaranteed the interest rate you’re paying on the debt. Don’t forget to check the security of any exchange or broker you use; some traders even opt to store their coins in crypto wallets offline, so they’re safe from hackers or other malicious actors.
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